Stats Show Characteristics Of WC Survivors
While most of the workers' comp numbers are pretty gloomy, there remains a tremendous amount of diversity with regard to the success of individual companies.
For example, data from the National Council on Compensation Insurance show that many companies appear to be reporting results that are at or above the projected cost of capital. And there are companies which, over a long period of time, seem to be capable of reporting very substantial and acceptable returns on surplus.
For some, current prices may be sustainable more or less indefinitely, exerting even greater competitive pressure on the weaker players.
The resulting differentiation is quite consistent whether one looks at those companies with a significant workers' comp focus (that is, a greater than average proportion of premium derived from workers' comp) as compared to the rest of the p-c industry, or whether one looks at one-year or five-year averages. Insurers fall variously into the following broad categories:
25 percent of companies doing very well (returns above the cost of capital).
25 percent of companies doing fairly well (positive returns near the cost of capital).
25 percent of companies doing fair (positive results below the cost of capital).
25 percent of companies doing poorly (returns below or slightly above breakeven).
Looking at the accompanying table, which shows some of the underlying performance drivers or characteristics by quartile for workers' comp insurers, the factors that seem to most differentiate the top quartile group include:
Superior investment performance.
Superior underwriting outcomes.
Lower capital requirements arising from superior outcomes.
Better financial leverage and profitability than the competition.
Highly selective choices with regard to covered risks.
Consistently faster claims closure rates.
Lower frequency–attributable to better risk selection, better loss control, or both.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 27, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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